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9 Feb 2018 - Hazel Ferguson, Communications & Campaign Manager, CIPD

Corporate governance is about what people do and why

Society is changing. Organisations are not solely focused on delivering value for their shareholders, they accept they have a wider remit to act as a responsible business and deliver on more than just a financial level. But does this actually happen in reality? Is corporate governance a challenge of compliance or is it really corporate culture that needs to change?

These were just some of the questions the CIPD explored and debated with senior stakeholders — investors, professional bodies, business leaders, regulators and legal services — at our latest roundtable discussion on corporate governance: 'Old rules for new models — does governance need fresh thinking?'

We kicked off the discussion with an opening question: is the status quo fine, broken, in need of light tough or radical surgery? There were a mix of views around the table, but the general consensus was that despite the corporate governance system, not enough has shifted in terms of how companies and individuals behave — which is where the change needs to occur. Codes and governance are not going to help shift mind-sets; instead we need to focus on principles, transparency, responsibility and accountability.

Everyone in the room was captivated by the discussion and there was some challenging debate, particularly around whistleblowing (as a force for good); the need for a move from short-term to long-term value creation; and the role the people profession can play in bringing about this step change and championing human value in the workplace.

The following are just some of the comments that were captured (unattributed because the debate was held under The Chatham House rule).

Good things are already happening, but we need to join the dots

Many organisations are already making positive strides in the area of corporate governance. But we need to do more to collaborate and celebrate the good things that are happening ('innovation diffusion') — not just to create a noise, but because the most successful way to change mind-sets and behaviours is to lead by example.

There is a lot of debate about what needs to change with the law, with regulation, with culture and with governance, but we tend to look at all of these things as separate parts of the puzzle. All of these areas are interlinked, and thus we need to look at them as one. Measurement criteria should be adjusted accordingly.

The value created for both shareholders and society should, ultimately, be one and the same, but many organisations don’t see it in this way at the moment, with financial value often put before all else. Section 172 of the 2006 Companies Act either needs a re-think or to be given more teeth.

Giving employees a voice

Whistleblowing — the act of telling the authorities or the public that the organisation you are working for is doing something immoral or illegal — is one of the most powerful and, arguably, the original disruptive technology. Under the Public Interest Disclosure Act 1988, all workers have the right to blow the whistle on their employees, however it doesn’t always seem to work in the way it should. Often we see a real disconnect between organisational boards and leaders and the workers on the ground. Although we have a robust system in place for individuals to voice concerns, many don’t feel like they can.

Is there something that can be done at a middle management level to provide employees with more voice, or to involve individuals more actively in developing corporate culture to break down the disconnect that currently exists? Are 'workplace boards' an option?

Moving from short-term to long-term value creation

It’s no secret that human bias is geared towards the short-term. However, in order to be effective and enable change the dial needs to shift so that organisations focus more on long-term value creation. Business and the people profession need to be 'future fit'. The NED system needs an overhaul in this context and new rewards systems introduced.

So in summary if we understand good governance as a question of culture, not compliance and talk about stakeholders in terms of people and society, not just shareholders, then the HR profession has a hugely important role to play in ushering in a new era of better governance. That said, everyone in a leadership position is a potential agent of change — and each one of us needs to recognise and embrace our agency. Corporate governance is not just about organisations; it's about what people do and why they do it.

Here at the CIPD we are committed to changing the conversation and shifting the dial. We are currently responding to the Financial Reporting Councils consultation on a revised Corporate Governance Code, where we will focus on the areas of human capital as a priority, transparency, employee voice, fairness and a new ‘human’ approach to measurement and reporting.